Court: Intent Not Necessary for ERISA Breach

June 8, 2005 (PLANSPONSOR.com) - A federal
magistrate has ruled that a defined benefit plan
administrative committee breached its fiduciary duties even
though it did not intentionally miscalculate one
participant's benefits and misrepresent that benefit level to
the employee.

As a result, US Magistrate Judge Pamela Meade
Sargent of the US District Court for the Western District
of Virginia ordered the plan to rescind the participant’s
early retirement election and reinstate full benefits as
of his normal retirement date.

Citing case law from the
US Fourth Circuit Court of Appeal, Sargent
asserted that a showing of intent on the part of the
party being accused of an Employee Retirement Income
Security Act (ERISA) breach was not necessary.

“The lack of any intent to deceive, however, does
not insulate the Administrative Committee from liability
based on this misrepresentation,” Sargent wrote in her
117-page ruling. “Courts have since found breaches of
fiduciary duty based on much less culpable
misrepresentations or, even, a failure to communicate
material information.”

According to the decision, the case involves Pyrix
Resources, a subsidiary of Pittston Co., which announced
it was acquiring Paramont Coal Corp. Pittston, which is
no longer in business, was a subsidiary of Brink’s
Co.

Paramont had a DB plan that provided all employees,
regardless of their salary, a maximum monthly retirement
benefit of $350. Pittston likewise offered its employees
a defined benefit plan that used a complex method for
calculating participants’ benefits.

After Pyrix acquired Paramont, the Paramont and
Pittston’s pension plans were merged. The new Pittston
plan provided that participants who worked for Paramont
would be entitled to have their years of service with
Paramont included for purposes of determining their
Pittston plan vesting. According to the court, the new
Pittston plan specifically provided that previous service
with Paramont would not be counted towards participants’
benefit accruals.

Sargent detailed numerous alleged conversations and
written communications by Paramont and Pittston officials
who five participants alleged misrepresented to them that
their years of service with Paramont would be counted
towards their Pittston pensions for benefit accrual
purposes.

Addington’s Benefits

One participant, Christopher Brooks Addington,
alleged he retired in 1995 after he received a letter
from Pittston’s administrative committee that stated his
monthly benefits would be $2,140. Sargent said Addington
received monthly retirement benefits from the Pittston
plan of $2,140 for five years when he was told his
monthly benefits had been incorrectly calculated and
would now be $806. The error, according to Sargent: the
plan’s administrative committee accidentally included his
years of service with Paramont for benefit accrual
purposes.

Addington and four other participants sued the plan
and its sponsor alleging an ERISA breach because of the
inaccurate benefits calculation information. However, the
court ruled that the plan’s fiduciaries did not breach their
duties by allegedly misrepresenting to participants that
when their employer merged with another firm their years
of service with the employer would count towards their
benefit accruals under the new firm’s pension plan. It
was adequately clear from both oral and written
communications that the participants’ years of service
with their employer prior to the merger would count
towards the new firm’s pension plan for vesting purposes
only, Sargent said.

“…the entire blame for the
miscalculations of Addington’s early retirement benefits
lies with the Pittston Plan and with the Pittston employees
who were entrusted with the task,” Sargent wrote. “While I
have found that the evidence in this case failed to prove
any purposeful scheme to deceive, I, nonetheless, note that
the evidence is replete with examples of careless
inattention to detail in the administration of this ERISA
plan, which resulted in numerous errors including the
inaccurate calculation of benefits provided to Addington
which is the basis of this claim.”

As a remedy, the court said that Addington should
be restored, as much as possible, to the position he
would have been in had the misrepresentation of his
monthly benefits never been made. Sargent ruled that
other federal courts have recognized reinstatement of
employment as an appropriate equitable remedy in similar
situations, but the court said this was not an available
remedy in this case because Addington has been out of the
work force for more than 10 years and currently is 72
years of age.

Instead, Sargent ruled that Addington should
be allowed to rescind his election for early retirement
benefits and be reinstated to the benefits he would be
entitled to under the Pittston plan if he had continued
to work until his normal retirement date of November 1,
1997. According to the court, this amount would be $1,256
per month.